ETFs provide everyday investors with the ability to gain exposure to obscure asset classes, ranging from corporate junk bonds to emerging market debt that would otherwise be difficult to reach. PIMCO is building on this trend with the launch of its Foreign Currency Strategy ETF (FORX), providing broad exposure to an actively managed portfolio of foreign (e.g. non-U.S.) currencies and related derivatives [Download How To Pick The Right ETF Every Time].
In a Nutshell
The PIMCO Foreign Currency Strategy ETF (FORX) is an actively managed fund providing exposure to foreign currencies by investing in currencies, currency forwards, or fixed income securities denominated in foreign currencies with durations of zero to three years. Given its exposure to non-U.S. dollar currencies, the fund is likely to benefit in cases where the U.S. dollar depreciates, and it limits its exposure to any single currency to 20% of the total portfolio.
The PIMCO Foreign Currency Strategy ETF is not only one of the few actively managed ETFs on the market, but is the only actively managed ETF focused on currency trading. With PIMCO’s strong reputation in currencies and bonds, the ETF is likely to attract the attention of many investors looking to either hedge against or bet on a decline in the U.S. dollar’s valuation, as well as those looking for an easy way to invest in the currency markets [see King Dollar ETFdb Portfolio].
The fund is managed by Scott Mather, an experienced European portfolio manager who co-headed PIMCO’s mortgage- and asset-backed securities team. Mr. Mather is supported by Vineer Bhansali, who oversees PIMCO’s quantitative investment portfolios, and Thomas Kressin, who is a senior vice president and head of the European foreign exchange desk in Munich.
Under the Hood
Unlike traditional ETFs that attempt to mimic an index, the PIMCO Foreign Currency Strategy ETF’s objective is to maximize total returns, consistent with prudent investment management, according to its prospectus. These attributes make the fund better suited as a long-term investment vehicle than individual currency ETFs that simply mimic a currency’s movement, or actual forex trading that can involve a high amount of risky leverage [see How To Invest Overseas Without Currency Risk].
The actively managed ETF holds a total of 50 currencies and derivatives, as of February 2013, with an effective maturity of about six-months. With total net assets of just over $22 million, the fund’s exposure primarily includes Canadian and Norwegian currencies, which are both weighted over 14%, as well as several other countries that are weighted over 5%.
The top five currency holdings include:
Due to its recent arrival on the scene, the ETF has limited liquidity with 440,000 shares outstanding and 36,832 shares traded per day on average, with no yield data available yet, making it somewhat riskier for investors. Those interested in the fund can expect to pay total expenses of around 0.76% or 0.65% after fee waiver, which is lower than many actively managed mutual funds targeting the same investor demographic.
PIMCO’s Foreign Currency Strategy ETF (FORX) offers investors a new hands-off way to speculate on currencies that’s easier than forex trading, cheaper than actively managed mutual funds trying to do the same thing, and less risky than currency ETFs or forex trading. And with PIMCO’s brand name and a solid management team at the helm, the ETF should see greater traction in the form of increased liquidity and yield information over the coming quarters.
Disclosure: No positions at time of writing.